Elon Musk: Bad Review In New York Times Cost Tesla $100 Million

A negative review in the New York Times can sometimes be enough to shut down a Broadway show. A bad review of a cutting-edge vehicle can be every bit as costly.

Tesla Motors’s chief executive officer says a Times story that found the electric-vehicle maker’s Model S sedan fell short of its estimated range erased $100 million of the company’s stock-market value in a matter of days.

"We did actually get a lot of cancellations as a result of The New York Times article," CEO Elon Musk said in a Bloomberg Television interview. "It probably affected us to the tune of tens of millions, to the order of $100 million, so it's not trivial…I would say that refers more to the valuation of the company. It wasn't as though there were 1,000 cancellations just due to The New York Times article. There were probably a few hundred."

The story, published Feb. 8, said a Model S failed to meet the sedan’s 300-mile promised range during a test-drive in cold weather. Musk on a Twitter post called the story “fake,” igniting a week-long firestorm that put the whole issue of electric cars under scrutiny. Musk released data logs challenging the veracity of reporter John Broder's account of his drive between Washington and Connecticut, which Broder then countered point-by-point. By the time the dust settled, the Times' independent public editor concluded that there were "problems with precision and judgment, but not integrity" in the story.

How damaging was the review? When it comes to investing, it can be hard to pinpoint why a stock moves noticeably in one direction or the other. Tesla shares have fallen 13 percent, from $39.48 to $34.38, since Feb. 7, the day before the Times article first appeared. That includes yesterday's 4.8 percent decline. The drop wiped $580 million from Tesla's stock-market value. The S&P 500 slid 1.3% during that period.

Too bad we don't have a Tesla-style data log to analyze the company's stock performance as events unfolded. But it appears Tesla stock was hurt more by its own financial results on Feb. 20 than by the Times review.

There's no doubt Tesla shares fell during the week that Musk and the Times were trading barbs in public. The stock fell from $39.48 the day before the story was published to $37.04 on February 15. That's a 6.2 percent decline, trimming $278 million from Tesla's market capitalization (which, by the way, is far more than the $100 million that Musk cited).

But the next week, Tesla shares fell 8.8 percent in one day, after the company announced a $396 million loss for the year, 56 percent worse than the prior year due to heavy start-up costs. Its current market cap is $3.912 billion. Included in the quarterly report was an upbeat assessment of the company's outlook. Musk said Tesla's production rate is improving and the company expects to generate "slightly positive net income, on a non-GAAP basis" in 2013 and be near breakeven on cash flow from operations.

But what about those cancelled orders? Musk said there were "a few hundred" because of the Times story. Until now, all the Model S vehicles sold have come equipped with the 85 kWh battery pack (the largest available, with the greatest range). Those cars start at $72,400. Let's assume Tesla lost 300 orders at $72,400 each. That likely cost the company about $22 million in revenue.

Is the Times to blame for those cancelled orders? It's hard to say, especially since Tesla announced a price increase effective Jan. 1 that put pressure on hand-raisers to buy quickly.

As Musk noted in the company's fourth-quarter letter to shareholders on Feb. 20, "We invited a large number of reservation holders to configure their cars during the quarter. Converting these reservations to firm, non-refundable orders increased cancellations, as expected. After deliveries and cancellations, our net reservations at year end, were over 15,000, up from about 13,000 at the end of Q3. New reservations continue at a steady, although slower pace in Q1 2013, as compared to December, due in part to the pull ahead of reservations into Q4 by customers seeking to avoid the price increase. Q1 cancellations are likely to remain elevated as the remaining older reservation holders are invited to configure their vehicles within a set timeframe or pay the higher price just like new reservation holders." (emphasis added.)

I'm not sure Musk can prove that the New York Times article cost his company $100 million. It could have been more or less.

In any case, it's safe to say that investors don't like uncertainty, and neither do consumers. And when it comes to the market for electric cars, there's still plenty of uncertainty.